Question
Company makes final call of 25c per share on 500 000 shares issued at $1. Holders of 20 000 shares fail to pay the call
Company makes final call of 25c per share on 500 000 shares issued at $1. Holders of 20 000 shares fail to pay the call and directors forfeit these shares. 1. Prepare GJ entries to reflect forfeiture and cancellation of shares.
Assuming a journal entry is required for the forfeiture and cancellation of shares, the following entries would be made: Forfeiture of Shares: Debit Share Forfeiture Account 4,000 (20,000 shares x $0.20) Credit Share Capital Account 4,000 Cancellation of Shares: Debit Share Capital Account 20,000 (20,000 shares x $1) Credit Share Forfeiture Account 4,000 Credit Capital Reserve Account 16,000 Explanation: - The first entry records the forfeiture of shares by the 20,000 shareholders who failed to pay the call. - The second entry records the cancellation of these forfeited shares from the company's issued share capital. The Share Capital Account is debited to reduce the number of shares issued, while the Share Forfeiture Account is credited to record the forfeited shares. Any excess of the amount credited to the Share Capital Account over the amount debited is transferred to the Capital Reserve Account.
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